5 Internet Stocks With Huge Upside

The top internet-based companies are beating revenue forecasts, while also investing heavily to generate yet more growth in the future, Barron's reports. "Revenue growth for most digital ad-, ecom- and services-based models were ahead of expectations and show faster shift of dollars online," according to a research note from SunTrust Robinson Humphrey, commenting on first-quarter results.

Investing for Growth

Of the 22 internet-focused companies covered by SunTrust, 18, or 82%, beat first-quarter revenue estimates, while 16, or 73%, beat EPS estimates. This is now the fifth straight quarter in which at least 80% beat revenue estimates, the SunTrust analysts observe. The main reason for these companies' success, per SunTrust: "increased investments in infrastructure, R&D and marketing to sustain higher revenue growth over time, and importantly higher spend relative to data protection and content/ad quality initiatives."

Attractive Valuations

Looking at enterprise value to EBITDA, using projected EBITDA over the next 12 months, SunTrust finds that the stocks in their Internet Index recently traded at 17.5 times EBITDA. This is near the five-year moving average for this metric, but well below the high of around 25 times that existed in 2006 and 2007, Barron's notes. This suggests significant upside potential.

Facebook, Amazon, Alphabet, Alibaba and Expedia also were SunTrust's top picks among internet stocks in August 2017, per that earlier report in Barron's. These stocks were cited by SunTrust back then as "high-quality names" that offered "identifiable catalysts at reasonable prices." (See also: Facebook's Growth Threatened By Twitter, Snap.)

Amazon

Amazon is a premier growth company, with a stellar stock price performance so far in 2018. In the first quarter, Amazon delivered a huge positive earnings surprise, with actual EPS of $3.27 beating the consensus estimate of $1.24 by 164%, per Barron's. The estimate for full-year 2018 is $12.38, or 189% better than the 2017 actual. The full-year estimate has been raised by 47% in the past month, up from $8.43.

Facebook

Despite its well-publicized troubles, Facebook managed to deliver a 25% positive EPS surprise in the first quarter, also per Barron's. The full-year 2018 estimate calls for a 28% EPS increase versus 2017, and it has been raised by 5% during the past month.

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